What Happened on Gambling's Black Friday?

In the gambling world, Black Friday doesn’t refer to the biggest shopping day of the year for Americans, nor any of the number of notable tragic events that have occurred on a Friday. No, for punters the world over, but especially in the United States, Black Friday refers to April 15, 2011, the day the United States brought a criminal case against three of the largest online poker companies operating in the country at the time, effectively wiping out the entire industry in America.

The Case: United States v. Scheinberg

U.S. Attorney for the Southern District of New York, Preet Bharara, brought the case against the online poker companies based on the violation of a New York state law, which qualified as a violation of the Unlawful Internet Gambling Enforcement Act (UIGEA). UIGEA, passed in 2005, made it illegal for gambling companies to knowingly accept payments for bets or wagers using the internet if to do so would violate any existing federal or state law.

While UIGEA and other federal laws such as the Wire Act of 1961 say nothing about online poker (most often focusing on sports betting instead), in the state of New York it is a misdemeanor to run a game of chance where bets are placed in the state. Since that makes online poker games a violation of a state law, it also constitutes a federal UIGEA violation, so a felony indictment was brought against the defendants. They were also charged with violating the Illegal Gambling Act of 1955.

The indictment also alleged that the executives of online poker sites participated in bank fraud and money laundering. This was done, per the indictment, through investment in a Utah bank, which they then would use to pay players by utilizing mis-coded transactions.

Effects of 'Black Friday'

Officially the case is called United States v. Scheinberg, after lead plaintiff Isai Scheinberg, the founder of PokerStars. It was accompanied by a civil case called United States v. PokerStars, et al. Upon the unsealing of the indictment on April 15, 2011, PokerStars and Full Tilt, the two biggest online poker operators in the U.S. pulled out of the market and stopped offering real-money play to American customers.

Additionally, the Department of Justice seized the .com addresses of PokerStars and Full Tilt (as well as Cereus, which ran Absolute Poker/Ultimatebet), and visitors to those sites were met by a takedown notice on their homepages. Eventually service was returned to PokerStars and Full Tilt once they agreed to stop accepting players from the United States. The companies also pulled the plug on their American advertising campaigns, including the cancellation of poker-themed television shows.

A little over a year later the government dismissed all civil complaints against PokerStars and Full Tilt as part of a settlement that included PokerStars purchasing Full Tilt. The settlement allowed the companies to admit no wrongdoing and end all legal proceedings between them and the government, but the indictments against the individual executives (11 in total) remain. Additionally, over 75 bank accounts in 14 countries were frozen as a result of the case, keeping players from accessing their accounts on the sites in question.

At the time of the indictment, it is estimated that the companies named made up 95% of the online poker market in the United States, with the American market accounting for anywhere from 25 to 40 percent of the company player bases. Additionally, the companies were spending nearly $200 million on marketing in the U.S., which disappeared.

Conclusion

In all, the repercussions from the case are still felt today, as the online poker market is almost non-existent in America. There is hope, however, as Nevada and Delaware have started experimenting with the limits of their current gambling laws as they pertain to online poker.

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